Rising Indian Bank Stocks Show Market Looking Past Weak Quarter

(Bloomberg) -- Shares of India’s top lenders show investors are looking past what is expected to be a lackluster round of quarterly earnings reports and toward growth in loan demand as local economies reopen from the latest Covid-19 lockdowns.

A gauge of lenders has climbed 3.2% so far this month, outpacing the 1.4% gain in the benchmark S&P BSE Sensex, as shops and businesses reopened amid a declining trend in new coronavirus cases.

Limited economic activity in April-June subdued credit growth as states imposed strict curbs to stop a deadly virus wave that overwhelmed the country’s health infrastructure. That slowed the recovery momentum seen in January-March and put the spotlight back on asset quality, especially for lenders that have lent more to small business.

Analysts expect bank earnings for the latest quarter to show an uptick in bad loans, but that the impact will be lower than what was seen during the first major lockdown. Many lenders have high provision coverage ratios and have set aside large funds for possible deterioration in asset quality, though they may be cautious about drawing down these provisions amid continued uncertainty on infection rates.

Here’s what analysts expect for the biggest Indian banks’ earnings:

HDFC Bank Ltd.

HDFC Bank will kick off first-quarter earnings reports for the nation’s top banks on Saturday. Shares of India’s largest bank by market capitalization have risen 6.2% this year, trailing most of its peers. The bank will post adjusted net income of 79.2 billion rupees for the quarter, according to the average estimate of 15 analysts polled by Bloomberg. Revenue of 248.4 billion rupees is expected.

• Emkay Global Financial Services Ltd. (Anand Dama, buy): “Subdued growth, net interest margins and fees should weigh on pre-provision operating profit, but contained provisions should lead to reasonable profitability.“
  • Slippages will remain elevated given higher stress in commercial vehicles, two wheelers, personal loans, cards and loans to small and mid-sized businesses.

ICICI Bank Ltd.

The private sector lender with 49 buy ratings versus no holds or sells will announce results on July 24. The bank’s shares have advanced 24% this year. Net income for the April-June period is estimated at 43.6 billion rupees, with revenue of 131.6 billion rupees.

• Nomura Financial Advisory & Securities (India) Pvt (Nilanjan Karfa, buy): Expects “relatively normalized provisioning cost” of about 140 basis points.
  • Management commentary on loan collections, restructuring pool, performance of loans under emergency credit lines program and credit demand will be key

State Bank of India

India’s largest lender by assets is also the top performer among major lenders with a 57% share-price gain this year. SBI is estimated to have earned net income of 55.1 billion rupees in the quarter, with revenue of 361.7 billion rupees. The bank is yet to announce date for its earnings release.

• Motilal Oswal Financial Services Ltd. (buy): “State Bank of India appears well-positioned to post a strong earnings uptick, led by moderation in credit cost as well as supported by recoveries. Over the years, SBI has strengthened its balance sheet and increased its provisioning coverage ratio.”
  • The impact of coronavirus on asset quality has been limited; remain watchful of the impact of more recent outbreaks, which could keep credit cost elevated

Kotak Mahindra Bank Ltd.

The private sector lender, led by Asia’s richest banker Uday Kotak, will release its April-June earnings on July 26. It is the only bank among the top four lenders whose shares have declined in 2021, falling 12%. It will report net income of 13.4 billion rupees for the quarter, on revenue of 48.9 billion rupees.

• Prabhudas Lilladher Pvt (Pritesh Bumb, hold): Momentum in net interest income is expected to be slow, growing 8% on the year, as the bank was conservative in loan growth.
  • The bank could see higher slippages, leading to elevated credit costs

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